The Abbott government’s own independent advisory body doubts if the Prime Minister’s generous paid parental leave scheme will encourage more women to go back to work.

The Productivity Commission has directly criticised Tony Abbott’s signature policy, recommending that some of the $5.5 billion earmarked for the expanded scheme would be better spent on childcare.

In a draft report on the childcare system out Tuesday, the commission says it is unclear whether the scheme will “bring significant additional benefits to the broader community beyond those occurring under the existing scheme."

It says there may be merit to divert some of the funding to early childhood care to meet the government’s objectives to get more mothers back into the workforce.

“Such a move could add up to a further $1.5 billion per year to Australian government assistance for" early childcare programs, it says.

More broadly, the report recommends a single, means-tested payment known as an “early care and learning subsidy’’ that could be used for the first time for registered nannies.

“The recommended expansion in the range of approved subsidised services to include existing registered care providers and in-home care services such as approved nannies . . . should enable these forms of care to become a more affordable option for a wider group of families," the report says. But it dismisses proposals to make childcare a tax-deductible expense because it would favour the wealthy, and puts childcare providers on notice about a shake-up of taxation and pricing arrangements.

The government asked the commission to examine the cost and flexibility of childcare. The report concludes that while paid parental leave is important immediately after the birth of a child, “the workforce participation of mothers of children aged under 15 years is affected by the costs and availability of suitable childcare".

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Mr Abbott has taken his “signature" PPL policy to two elections. Under changes due from July 2015, existing entitlements will be increased to 26 weeks at full wage, capped at $50,000. The government argues most developed countries’ schemes replace parents’ wages and this places Australia at an economic disadvantage.

The Productivity Commission was responsible for recommendations in 2009 that led to the existing scheme, which provides 18 weeks at the minimum wage.

The Productivity Commission’s system would a cost an extra $800 million a year. But there would be pay-offs, including an extra 47,000 workers contributing to the economy, leading to a lift in gross domestic product of $5.5 billion, or 0.4 per cent.

With present childcare arrangements, all families are eligible to receive the childcare rebate, which covers 50 per cent of out-of-pocket expenses up a maximum of $7500 per child per year. There is also a childcare benefit, which is means tested and targets low to middle-income families. The commission believes there is further scope to direct support to poorer families.

Under commission’s preferred scenario, outlined in the report, families with gross income of $60,000 or less would get a maximum 90 per cent subsidy. Families with incomes over $300,000 would receive base rate of 30 per cent.

“For those with a family gross income under $160 000, mainstream ECEC services are likely to be more affordable under the new scheme than under the existing combinations of [rebate and benefit]," the report says.

But wealthier families may yet be cut out of the rebate system, with the commission “actively exploring alternative options for child-based support, including a zero minimum rate of assistance at a family income level other than $300,000," it says.

One of the reasons that childcare spending is growing so fast, and is set to reach $8.5 billion by 2018, is that the childcare rebate is tied to what childcare providers charge, the report says.

The report suggests setting a “deemed“ cost to deliver childcare services. In 2013-14, these amounts are estimated at $7.53 per hour for long day care centres, $6.84 per hour in family day care (this rate is also applied to approved nannies), and $6.37 per hour in outside school hours care. Childcare centres could charge more of course, but parents may not be willing to pay above the amount of their subsidy.

Mr Abbott has said any changes will have to fall within the existing funding.

The report also recommends the removal of the fringe benefit tax exemption for employer provided childcare “on the basis that this provision provides a largely non-transparent benefit to a small number of families typically on very high incomes".

Assistant Minister for Education Susan Ley stressed the recommendations were still in the draft stage and there were to be more consultations.

“We believe there needs to be greater choice in child care options for parents. Australian families should be able to plan child care around their work life, not their work life around child care."

Public hearings will be held during August, with a final report to go to the government by 31 October.